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Mapping the Effects of International Investment Flows: Weekend Reading

Dr. Patricia Buckley

Countries continue to find the United States an attractive investment, and their investments create U.S. jobs. However, this important job generator should not be taken for granted: The United States competes with the rest of the world for investment. As discussed in the third part of Deloitte’s Geography of Jobs report, “Mapping the Effects of International Investment Flows,” the fact that jobs tied to foreign direct investment (FDI) actually managed to increase while total employment still languished demonstrates the power that long-term foreign investment can bring to the U.S. economy. Following is an excerpt from the report published by Deloitte University Press.

As companies look to grow, one of their major considerations is location: Where should production take place, and where should service providers be located? For service businesses, the availability of a quality workforce is generally the critical factor. With production facilities, the location decision is more complex because of the fixed capital investment that is generally required. In addition to making sure that an appropriately trained and educated workforce is available, decision makers must consider many other factors related to the movement of goods, including transportation infrastructure, supply chain considerations, the business and regulatory environment, the availability of suitable real estate, risk and quality of life (particularly for expatriates).

A nation’s attractiveness to expanding businesses—both foreign and domestic—is key to its economic growth. Within countries, there is substantial competition at the sub-national level to attract foreign as well as domestic investment and the employment it brings. In the United States, states and localities actively promote investment through a variety of means, with economic development offices touting the quality of local workers and infrastructure and offering tax and other financial incentives.

Dr. Peter Viechnicki

Investment Flows to the United States

The United States is a major recipient of international investment dollars, although the proportion of world FDI flowing to the United States has lessened over the years. As shown in Figure 1, the absolute dollar amount of foreign investment that the United States attracts has been relatively level over the last 15 years, averaging just under $200 billion per year. This is in stark contrast to FDI in the European Union, which has been on a downward trajectory since 2007—the year prior to the start of the financial crisis—with no obvious signs of recovering. However, over the same period, investment flows to the rest of the world, especially to China, grew rapidly. In the early 2000s, China received less than 10% of world FDI. More recently, that proportion has risen to between 15% and 20%. Because of this rapid growth in annual flows, the stock of foreign-owned investment in China rose rapidly from 3.7% in 2004 to 9.5% in 2012, making China second only to the United States, which held 13.4% of world foreign direct investment as of 2012.¹

The stock of FDI on a historical cost basis is the sum of a country’s annual FDI inflows (which can be negative if enterprises withdraw investment). With its fairly constant level of inflow, the stock of U.S. FDI has been rising steadily over time. In the recession/post-recession period of 2007 to 2013, FDI in the United States increased by 38.7% and totaled $2.8 trillion in 2013.² However, this amount is substantially less than the asset value that FDI generates. The total asset value of majority owned foreign multinational enterprises (MNEs) in the United States was $12.7 trillion in 2012 (the latest date for which data are available) based on FDI of $2.6 trillion (2012).

Europe continues to be the largest source of inbound investment to the United States (Figure 2). However, in recent years, investments originating in the Asia-Pacific region have been growing in importance due to increased investment from Japan. Investment in the United States by China is still at very low levels.

The Changing US FDI Market Basket

As previously mentioned, the United States has attracted a total FDI stock of $2.8 trillion on a historical cost basis. Three sectors account for three-fourths of the investment: Manufacturing, Other services and Finance and insurance.

Lara Wigmore

Manufacturing was the largest and fastest-growing industry in dollar terms for foreign investment. FDI in U.S. manufacturing grew by $288 billion, or 44.4%, between 2007 and 2013, and it now totals $936 billion. Within manufacturing, the sectors attracting the most FDI include chemicals, petroleum extraction and refining, motor vehicles and parts, primary and fabricated metals, food, and computers and electronic products. The second-largest industry in terms of FDI was “other industries,” which consists primarily of nonbank holding companies (attracting 39% of the total FDI in “other industries”), mining (25%) and utilities (11%). Overall, FDI in “other industries” totals $590 billion. FDI in finance and insurance grew slightly more slowly than the “other industries” category, making finance and insurance currently the third-largest industry recipient of FDI.

Although smaller in size, the two industries with the highest percentage gain were retail trade as well as professional, scientific and technical services, both of which saw the amount of FDI they attracted almost double during the period. Investment by foreign enterprises gains in value over time and is an important job generator. In fact, U.S. employment tied to FDI fared better in the aftermath of the recession than did employment in general. Employment by majority-owned U.S. affiliates of foreign MNEs numbered 5.8 million in 2012, an increase from its 2007 level of 5.6 million.³ In contrast, overall employment in the United States was still 3.8 million below its 2007 level in 2012.⁴

Read the full report, Geography of Jobs Part 3: Mapping the Effects of International Investment Flows to learn how FDI has affected job growth across various industries and states since 2007.

Endnotes1. Organization for Economic Cooperation and Development (OECD), “Foreign Direct Investment (FDI) Statistics—OECD Data, Analysis and Forecasts,” http://www.oecd.org/corporate/ mne/statistics.htm.2. This figure refers to the balance of payments and direct investment position data for majority owned foreign MNEs on a historical cost basis from the Bureau of Economic Analysis.3. Bureau of Economic Analysis (BEA), US Department of Commerce International Data, Direct Investment and MNE, http://bea.gov/ iTable/index_MNC.cfm.4. US Bureau of Labor Statistics, Current Employment Statistics

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